Let’s Build a Sustainable Auto Industry

The winds of change are certainly blowing out of the District of Columbia these days. While the big news is our newly elected president, we also see that Henry Waxman was able to defeat John Dingell and take over as the chair of the House Committee on Energy and Commerce. It has been from this perch that Congressman Dingell has protected the auto industry from the forces of modernity and sustainability for more than a quarter of a century. While Dingell’s defeat is good news for the environment, let’s hope it doesn’t signal the end of the auto industry. The guys running the Big 3 American auto companies are certainly not helping their own cause. As widely reported in the media, they are so politically tone deaf that they had the nerve to travel to Washington in private jets to beg for money for their cash-starved businesses. Amazing.

Despite the absence of political and apparently managerial skill at the top of our auto companies, the United States really can’t afford to allow the collapse of the domestic auto industry. However, just as we did during World War II, we need to convert Detroit’s factories to meet today’s urgent needs. In World War II, we needed military vehicles and bomber planes. In 2008, we need automobiles that are energy efficient and fossil-fuel free as soon as possible. As my boss and colleague, Jeff Sachs has so eloquently argued over the past few weeks: The economy went into recessionary shock when Lehman Brothers was allowed to go under, it will go into a full-blown depression if we allow the auto companies to collapse. Although no one wants to reward the people running these companies, we have an opportunity to link their financial survival to a requirement that they focus today on the car of tomorrow.

While I believe the current economic crisis gives us an opportunity to rethink the basis of our economy, many argue that we cannot afford the capital costs to “go green”. I keep hearing that energy efficiency and environmental stewardship are luxuries we cannot afford in this difficult time.The persistence of the idea that we need to trade off economic growth and environmental protection never ceases to amaze me. It is obvious from where this concept originates. Most early environmental regulation required “end of the pipeline” treatment of pollutants. Like catalytic converters on cars, these pollution-control devices added costs to goods and production processes.

Of course, while the costs were obvious and borne in the short-run by businesses and consumers, the benefits were not always put into the equation. Moreover, some of the benefits took a while to be seen and were not always felt by those who incurred the costs.Still, even traditional environmental regulation generates more monetary benefits than costs. In a 2003 Washington Poststory, Eric Pianan reported on a study by the US Office of Management and Budget that clearly demonstrated the economic benefits of pollution control:

“…the health and social benefits of enforcing tough new clean-air regulations during the past decade were five to seven times greater in economic terms than were the costs of complying with the rules. The value of reductions in hospitalization and emergency room visits, premature deaths and lost workdays resulting from improved air quality were estimated between $120 billion and $193 billion from October 1992 to September 2002…By comparison, industry, states and municipalities spent an estimated $23 billion to $26 billion to retrofit plants and facilities and make other changes to comply with new clean-air standards, which are designed to sharply reduce sulfur dioxide, fine-particle emissions and other health-threatening pollutants.(“Study Finds Net Gain From Pollution Rules: OMB Overturns Past Findings on Benefits” Washington Post, September 27, 2003)

Even this old-fashioned form of “end of the pipeline” control was cost effective for society. Of course, the problem is that many of the benefits did not come to those bearing the costs. In addition, even if you saw a benefit, the costs came much earlier than the benefits. Given the favorable cost-benefit ratio, it seems this is a problem that could be solved by the tax code and other types of cross-subsidies.

The truth is that there is no tradeoff between environmental protection and economic growth. Destroy the environment and you cannot grow food, draw fresh water or breathe.If you poison the land with toxic waste, it costs billions of dollars to detoxify.Economic growth depends on environmental protection. The real benefit of the sustainability perspective is its goal of driving waste and pollution out of the production process entirely. If you make a product with fewer raw materials and less energy, your efficiency should result in lower prices or higher profits – and possibly both. Pollution is a form of waste and waste is the enemy of efficiency.

The American auto industry is collapsing because the economy is weak and because consumers are rejecting their products. This is both a crisis and an opportunity. It is an opportunity to reinvent an industry that needs to come into the 21st century. It is a chance for American industry to demonstrate it can adapt and grow sustainably. Let’s not let our anger or disappointment with the auto industry blind us to the opportunity to rebuild it.